6 minute read
METALIMEX → Interview with new CCO, Daniel Trnka
Risk management in an unpredictable area
Text: Luděk Vokáč, photo: Barbora Mráčková
Trading non-ferrous metals, steel and solid fuels is a very unpredictable industry. “During my career, I have read a number of price forecasts from big analytical companies. But what actually happened was very different,” says Daniel Trnka, the new METALIMEX Chief Commercial Officer, explaining how the market can be difficult.
METALIMEX is MTX Group’s flagship company. It buys raw input materials and sells finished products through member companies. Its goal is giving the other companies the most stable operation conditions possible by securing stable prices for input materials as well as stable sales of the finished products. The problem is that prices of input materials are highly volatile. “When bank analysts and big consulting companies estimate price trends, they usually can’t know how fast and intensely they will play out,” says the new METALIMEX Chief Commercial Officer, Daniel Trnka. This volatility has increased even more over the past few years. In his sector, he’s tasked to minimize the risks arising from this volatility, among other things. This means having a clear picture of the risks and constantly negotiating with suppliers and customers.
Does the commodity market have any regularities at all?
Yes, despite the aforementioned instability, the commodity market has some regularities. Thanks to my professional experience, I know every commodity behaves and reacts differently. For example, coal prices can be the most volatile. It’s not uncommon to change to multiples of the original value in a very short time. Metal prices change less dramatically. Copper, for example, is influenced by green energy and the fact that it’s so difficult to increase production capacity to meet demand. Primary aluminum is very sensitive to changes in energy costs. Last year, this meant, despite having the highest market price in history, some European companies had to stop production, which caused a production shortfall of about 900,000 tons of aluminum.
Are these dramatic fluctuations the result of COVID-19 and the war in Ukraine?
In a way, yes. There had been signals that the economy was overheating before, but then Covid stopped the economy. When it started again, everyone was trying to make up for the shortfall. Also, people changed the way they do business. Now, it’s done remotely. I used to meet business partners every day and now everything is done online. Sure, some things are more efficient this way, but establishing new business relationships or having technical meetings and brainstorming with multiple people doesn’t work this way. We have had to adapt to this. Now that measures aren’t as strict, we are strengthening some newly established business relationships. Then, the war in Ukraine started. It changed some of our supply chains but also already elevated energy costs.
What can you actually do in such cases?
Our work stays the same, it just gets more intense. Simply put, it’s all about buying and selling. Our job is to ensure the member companies have the best conditions possible. That means getting commodities for a price that allows them to make competitive products efficiently. In terms of sales, we need to be able to navigate in a market full of strong competition. Now more than ever, it’s crucial to know the obligations and associated risks arising from our contractual relations, and to eliminate them. On top of all that, we use traditional tools such as hedging commodity prices through the London Metal Exchange.
Daniel Trnka
Since June 1st of this year, he has been the Chief Commercial Officer at METALIMEX. He has worked in various sales positions at MTX Group since 2016, after transferring from OKD. There, he gained his first experience of trading in energy and coking coal. “At METALIMEX, I literally started from scratch. But thanks to working in the fuel division, where I started, I got to know the ins and outs of the business,” he says. In time, he was tasked with securing supplies of coking coal from overseas for OKK Koksovny. His task was, among other things, to eliminate the risks related to the fluctuation of coal prices. Gradually, he added other commodities to his portfolio and became acquainted with other areas of trading within METALIMEX. In 2020, for example, he and his colleague Dimitris Kristalas reshaped the way PCI trades products. At the end of the year, he took over primary aluminum trading and hedging non-ferrous material prices on the London Metal Exchange. Therefore, over time, he learned the risks and regularities associated with most commodities that METALIMEX works with, which made him a great candidate for the renewed position of chief commercial officer.
Despite being so difficult, do you have any predictions for how things will change from now on?
The market is highly unpredictable, and we have to be prepared for almost anything. On the other hand, there are some regularities. For example, when interest rates rise, as they do now, it causes commodity and stock prices to fall. That is currently happening, so the market is behaving predictably, in this regard. But the question is what will follow. China has a strong influence on the price of commodities, but due to their strict Covid measures, they have not been able to fulfill their economic plans, and it’s possible that they will want to catch up in the last quarter, which could change commodity prices. Nobody knows if China will be able to do that or if they will introduce new strict measures, which would further slow their economy. Besides, we can continue to expect pressure from increasing energy costs, which will continue to drive inflation, especially in Europe. Therefore, in general, it depends on which scenario prevails. However, I expect inflation to keep rising due to increasing energy costs.
What does it mean for your customers and suppliers?
For our customers and suppliers, this certainly means higher demands on the stability of their business partners. In such turbulent times, when constant change is the only certainty, working with a stable, financially strong, tried-and-tested partner is a key prerequisite for success. And that’s what METALIMEX is for our business partners.
What challenges await METALIMEX in the near future?
A lot of our previously established connections are no longer working for us. We need to learn how to deal with these fluctuations and changes. This mainly means hedging commodity prices through commodity brokers, valuation using indexes, and closing back-toback contracts. But also finding new ways such as recycling. We have placed a great deal of faith in that in the group. Recycling and a circular economy are the future in order to maintain heavy industry in Europe. MTX Group is working on several investment projects that will significantly impact the size of our portfolio. I see great potential in strengthening supplier relationships and growing our market share with clients outside the group.
